A Bankrupt Harrisburg Will Need to Focus on Morale

Harrisburg, Pennsylvania, filed for bankruptcy last week. The troubled state capital is awash in debt, and after a contentious city council vote narrowly supported the move, the city filed the paperwork to obtain Chapter 9 bankruptcy protection. Meanwhile the mayor and state officials are arguing over whether the council had the legal authority to proceed with such a filing.

It’s an unfortunate situation for a city to be in, but despite tough economic times, Harrisburg and Central Falls, Rhode Island, are the only two U.S. cities to file for bankruptcy this year.

No matter what the outcome of the legal questions now being fought in court, Harrisburg is in for a trying time. Just ask Vallejo.

In 2008, the San Francisco Bay Area city became the largest city in California history to declare bankruptcy. An unresolved clash between the city and union workers over wages and severely diminished tax revenue forced the city to take the drastic step. Since then the city’s been trying to bring its house into order, a task made even more difficult by further state cuts to local government as the recession set in.

Phil Batchelor was hired last November as Vallejo's city manager to help bring the city of 115,000 out of bankruptcy and to restore its financial situation. He has a lot of advice for Harrisburg and any other city that finds itself contemplating bankruptcy, but he says one suggestion is the most important.

“They'd better get the right attorney,” Batchelor says. On top of the budget woes that got the city into its mess in the first place, Vallejo has racked up more than $11 million in legal fees to date, according to Batchelor. “This is not, by any means, a picnic.”

Aside from the challenge of ironing out budget issues, Batchelor says one of the hardest parts about dealing with bankruptcy is the stigma it creates.

“You’re under the banner that says in capital letters, ‘we are bankrupt.’ This tells people that this entity is dysfunctional,” says Batchelor. “It’s very demoralizing and it hurts morale.”

And morale, he argues, is an important factor to consider. When people are unhappy with their work situation, their quality of work goes down. For a public office, this can translate into poorly treated citizens and an overall bad attitude in the city.

“It’s not just about the money. It’s about the culture,” he says. “I’ve spent at least as much time on changing the culture as I have working on creating a budget that’s stable.”

When Batchelor first took the helm as city manager last year, he presented a list of 297 recommended actions. The first in that list is to “develop a culture that promotes respect, integrity, professionalism and excellence.”

This has as much to do with addressing the city’s current self-esteem issues as it does with the years of mistrust between the city and contractors, vendors and unions that helped foment the cause of the bankruptcy. Batchelor says the city needs to focus on communicating and being honest with its citizens, its partners and itself. Dozens of other points in his plan relate to finance, the image of the city and its branding, and efficiency.

He says the two-pronged approach of restoring the city’s morale and its finances are gradually working, and that the city is nearly out of bankruptcy almost three and a half years later.

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He advises that cities facing budget problems do as much as they can to avoid bankruptcy, but knows that the process is often years in the making. For cities like Harrisburg and Central Falls, though, Batchelor says a key to surviving bankruptcy is to be as self-sufficient as possible.

“We recognize that the federal and state governments have problems of their own and they’re not going to come to our aid,” Batchelor says.

So officials in Vallejo have pushed for a proposition in next month’s municipal elections that will ask voters to raise the city’s sales tax by a percent to help fill in some of the gaps. City council candidates and incumbents have taken sides for or against the tax increase as campaign strategies, which underscores both the need for more money in city coffers and the lack of money in residents' pockets. Batchelor isn’t sure if residents will get behind the city’s proposed tax. But at least they're asking.